When someone with a FHA insured mortgage can't meet the payments, the lender forecloses on the home; HUD pays the lender what is owed; and HUD takes ownership of the home. HUD then sells the home at market value through the local real estate community.
Anyone who can qualify for a mortgage or who can pay cash may buy a HUD home. Owner occupants must live in the house as their primary residence for at least one year and may not purchase another HUD home as an Owner Occupant for two years. Buyers must use a broker or agent who is registered with HUD to place a bid on a property.
There are three main types of FHA Financing. More information may be obtained from any mortgage company familiar with FHA Guidelines for the various programs.
(1) 203(b) Regular FHA Loan - Listed as "IN"
If the Property does not have any mandatory repairs FHA will insure the Loan hence the classification of "IN"
(2) 203((b) - Repair Escrow - Listed as "IE"
When a property has less than $5000 in repairs to bring it up to Minimum Property Standards, FHA will insure the loan provided the repairs are completed by the Buyer or the Buyer's agent within 90 days from the date of Closing.
It is a cost to the Buyer that the Buyer can finance and add the amount to the mortgage.
The Lender monitors and keeps the funds in an escrow account for disbursement on completion of repairs to the Lender's satisfaction.
(3) 203(k) - Rehab Loan - Listed as "203K"
When the property has more than $5000 in Minimum Property Standards repairs to be done.
The Lender must obtain an Inspection report from an approved 203(k) consultant and a new appraisal.